836 F.

2d 1310
61 A.F.T.R.2d 88-567, 88-1 USTC P 9188

Dona H. SLY and Joann E. Sly, Plaintiffs-Appellants,

v.
The UNITED STATES of America, Defendant-Appellee.
No. 86-7773.

United States Court of Appeals,

Eleventh Circuit.
Feb. 2, 1988.

Dona H. Sly, pro se.

Joann E. Sly, pro se.
John T. Robertson, Gadsden, Ala., for plaintiffs-appellants.
Frank W. Donaldson, U.S. Atty., Caryl Privett, Asst. U.S. Atty.,
Birmingham, Ala., Michael L. Paup, Roger Olsen, U.S. Dept. of Justice,
Gilbert S. Rothenberg, Tax Div., U.S. Dept. of Justice, Janet A. Bradley,
Washington, D.C., for defendant-appellee.
Appeal from the United States District Court for the Northern District of
Alabama.
Before ANDERSON and EDMONDSON, Circuit Judges, and CARR * ,
District Judge.
ANDERSON, Circuit Judge:

This appeal presents the narrow issue of whether a tax is "paid" at the time the
taxpayer's real property is seized by the Internal Revenue Service ("IRS") for
collection of the tax or at the time of the sale of such property. We conclude
that the tax is not "paid" until the seized property is sold.

I. FACTS

On March 4, 1981 and October 16, 1981, the IRS filed tax liens in the total
amount of $3006.61 against two parcels of real property owned by appellants
Dona and Joann Sly. The tax deficiency was from appellants' 1976 tax year. On
March 12, 1982, the IRS filed a notice of levy on the real property and on April
19, 1982, filed a notice of seizure.

The Slys filed a refund claim on June 7, 1982. The IRS made two unsuccessful
attempts to sell the property and thereafter determined that its value was
insufficient to justify the cost of a sale. Consequently, the IRS returned the real
property to the Slys on August 3, 1982. The IRS denied the Slys' refund claim
on October 26, 1983.

The Slys' outstanding tax liability was satisfied in full on March 25, 1983,
following the IRS' seizure and sale of the Slys' automobile. The Slys then filed
an amended refund claim on April 26, 1985, which the IRS denied on August
27, 1985. The Slys commenced this action for a refund on October 25, 1985, in
the U.S. District Court for the Northern District of Alabama.

At trial, the court granted a directed verdict in the government's favor. The
basis for the court's decision was that neither of the Slys' refund claims was
filed within the applicable statute of limitations. 26 U.S.C. Sec. 6511. Section
6511 requires that a taxpayer must file a refund claim either within three years
following the date on which the return is filed1 or within two years after the tax
is paid.2

The Slys assert that the tax was "paid" when the real property was seized on
April 19, 1982; and therefore that their June 7, 1982 claim, filed less than two
months after the seizure, was timely.3 The district court concluded, however,
that seizure of property did not constitute payment of the tax and that payment
was not made until the Slys' automobile was seized and sold on March 25,
1983. Consequently, the Slys' initial refund claim, filed on June 7, 1982, was
premature and their second claim, filed on June 26, 1985, was outside the twoyear statute of limitations by one month.

II. DISCUSSION
7

The sole issue raised on appeal is whether seizure of the Slys' real property
constitutes payment of the tax for the purposes of triggering the two-year
statute of limitations of 26 U.S.C. Sec. 6511(a). We conclude that a tax is not
"paid" until the seized property is sold.

This court has never explicitly addressed this issue. However, in Clark v.
Campbell, 501 F.2d 108, 126 (5th Cir.1974),4 the former Fifth Circuit, in anther
context, implied that a tax is not "paid" until property is seized, sold, and the
proceeds applied to the tax liability. Accord Kabbaby v. Richardson, 520 F.2d
334, 335 n. 8 (5th Cir.1975) ("We indicated in Clark that seizure does not equal
payment.").

The Supreme Court's decision in United States v. Whiting Pools, Inc., 462 U.S.
198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983), also supports our conclusion that
seizure does not constitute payment. The issue in Whiting was whether property
seized by the IRS prior to the taxpayer's declaration of Chapter 11 bankruptcy
was part of the reorganization estate and thereby subject to the automatic stay
provisions of the Bankruptcy Code which prohibited sale or disposition of the
reorganization estate's assets by a secured creditor. The court concluded that
because the IRS' seizure of property did not divest the taxpayer of his
ownership of that property, the IRS was subject to the bankruptcy stay and
could not sell the seized property to satisfy the tax liability. The court noted
that ownership of the seized property did not transfer to the IRS until the
property was sold at a tax sale. 462 U.S. at 209-12, 103 S.Ct. at 2316-17.

10

By analogy, if ownership of property is not transferred from the taxpayer to the

IRS when the latter seizes property pursuant to a tax lien and levy, it is
impossible for the seizure to constitute payment. Payment only could occur
when the IRS becomes the "owner" of the property, which under Whiting does
not occur until the property is sold. Consequently, "payment" of a tax is
concurrent with the IRS' sale--not its seizure--of a taxpayer's property.

11

Our conclusion also is supported by policy considerations. The rule urged by

the taxpayer here would introduce unnecessary uncertainty into an area where
certainty is important. Unless there is a measure of certainty and predictability
surrounding the two-year time period for filing a claim for refund, unwary
taxpayers will fall into the trap of having the time period expire and be barred
by the statute of limitations. Because the precise value of property seized often
will be uncertain at the time of seizure, it will often be unclear whether such
value equals the full amount of the tax due. Thus, it would be difficult for the
taxpayer to know whether the tax has been paid in full and therefore whether
the two-year time for claiming the refund has been triggered.5

12

For the foregoing reasons, the decision of the district court is

13

AFFIRMED.

Honorable George C. Carr, U.S. District Judge for the Middle District of
Florida, sitting by designation

The parties agree that the three-year statute of limitations expired before the
Slys' initial claim was filed. They filed their 1976 tax return on April 11, 1977,
thus the statute of limitations expired on April 11, 1980. Their first refund
claim was not filed until June 7, 1982

Section 6511(a) provides as follows:

Period of limitation on filing claim. Claim for credit or refund of an
overpayment of any tax imposed by this Title in respect of which the taxpayer
is required to file a return shall be filed by the taxpayer within three years from
the time the return was filed or two years from the time the tax was paid,
whichever of such periods expires the later....

The Slys' argument is premised on the assumption, which we must accept in

this directed verdict posture, that the jury reasonably could have concluded that
the value of the real property on the seizure date was greater than or equal to
the tax liability so that the tax would have been paid in full

This case was decided prior to the close of business on September 30, 1981,
and is binding precedent under Bonner v. City of Prichard, 661 F.2d 1206, 1209
(11th Cir.1981)

Also, the taxpayer's position would create an administrative problem. The IRS
cannot know how much to credit the deficiency owed by the taxpayer until the
sale fixes the value of the amount to be credited to the tax